Security Implications of the Global Energy Situation

DGAP Transatlantic Roundtable convenes in November 2015

16/11/2015 | 12:30 - 14:00 | | Invitation only

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Early in 2015 the new Lithuanian liquefied natural gas (LNG) terminal “Independence” became operational, opening a new chapter in the country’s energy supply. This November’s meeting of the DGAP’s Transatlantic Roundtable discussed developments in global energy markets and their implications for energy security in the United States and Europe.

Paul J. Sullivan, professor of economics at the National Defense University in Washington, began with a presentation on the interdependencies of global energy relations, paying special attention to the geopolitical impact of continuously low oil and gas prices as well as the topic of geopolitical burden sharing. Although gas prices remain relatively low, LNG export facilities are currently under development in a number of states. Around seven or eight are being installed in the United States, while additional plants are planned for Canada, Australia, and Qatar.

Professor Sullivan noted, however, that events such as the November 13 terrorist attacks in Paris have the potential of increasing military conflict in the Middle East. This could further disrupt regional security, leading to rising prices for gas and oil. At the same time, US production wells for shale gas do offer comparative flexibility, as they can be shut down when prices are low but can be uncapped rather quickly (within 5-6 months) when demand increases. Sullivan underlined the fact that shale gas booms are likely to come in periodic cycles and will always have high and low phases. To tackle the notoriously unstable situation in the Middle East, Sullivan made clear that a new “burden sharing will necessarily have to happen.” The US can no longer act as a security guarantor in the region due to the massive cuts to its defense budget made in recent years.

Sullivan estimated that a possible lifting of the 40-year old ban on US exports of crude oil could occur by 2017. If this occurs, oil exports from the US would not negatively affect the domestic price of oil, since currently 1.3 trillion barrels of oil would still remain in the ground. Thus, according to Sullivan, US exports could have huge potential in the long run. Europeans should not bet on cheap US energy, however, but rather use their options to import natural gas from a variety of suppliers in order to diversify away from Russian supplies and increase its energy security.

A second speaker was Aušra Semaškiené, ambassador-at-large for economic and security policy at the ministry of foreign affairs of Lithuania. She stressed the importance of Lithuania’s recently opened LNG for energy security both in Lithuania and in the overall Baltic region. Changes in the Lithuanian energy sector only became possible in 2015 after the LNG terminal “Independence” became operational. Up until then, the country had been fully dependent on energy supply structures left over from the Soviet era and Russian gas deliveries through Gazprom.

Ambassador Semaškiené referred to “availability, affordability, and accessibility” as the three major challenges for Lithuania’s energy security. Whereas accessibility and affordability could be dealt with domestically, the country launched its “Independence” LNG terminal earlier this year to address the matter of availability. It has since seen dramatic changes to its energy supply. Gazprom offered a price reduction of almost 20 percent on its gas supply immediately after the LNG terminal became operational. Now the country has the capacity to cover 100 percent of its own and up to approximately 90 percent of the other Baltic countries’ gas needs through imports via the new terminal, provided the appropriate infrastructure is available. This shows how the terminal is already used by neighboring states as a bargaining tool in their respective negotiations with Gazprom, Semaškiené stated.

Future projects should now focus on establishing pipeline interconnectors with the neighboring countries to make gas available to the rest of Europe. From a Lithuanian point of view, the LNG strategy should be expanded and seen as a source for diversification, not only by establishing different routes but also by using different suppliers and thus breaking monopolies such as Gazprom’s. The ambassador emphasized that this gas could be seen as environmentally cleaner than other fossil fuels and as such clearly belonged to the future energy mix across Europe. She stated that Lithuania would strengthen the same pillars as the rest of the European Union: diversification, the importance of an international energy market, efficiency, new technologies, and the goal of deploying energy supplies with lower carbon emissions. These five factors together are vital for energy security.

The discussion that followed touched upon several topics, including the future of LNG, the impact of renewable energy, the Nord Stream Pipeline, and the role of China as an energy consumer and possible supplier.

Roundtable participants agreed that the potential impact of LNG on global energy consumption would be determined by market prices and private companies’ profits and not by political decisions. If the negotiations on the Transatlantic Trade and Investment Partnership (TTIP) are completed successfully, this would also impact the role of US LNG in the European energy market, since it would make separate export licenses obsolete. Still, prices will be determined by natural gas prices and exploitation of resources in Europe and Asia, especially in China.

A number of comments focused on the Nord Stream pipeline, which connects the Russian city of Vyborg to Greifswald, on Germany’s Baltic Sea coast. While the pipeline would not necessarily affect the energy supply to the Baltic states and Poland, participants agreed that it will surely bypass Ukraine and lead to a further decline of that country’s energy security. Although it might be wise to include Russian gas in a European overall diversified energy supply, the new pipeline Nord Stream II would bind Europe even closer to the same supplier – and therefore to gas prices that are linked to Russian oil prices. One participant called this link “the biggest Russian scam.” LNG, in contrast, could lead to a fall in energy prices from the Russian supplier.

On the question of China’s role as the main energy consumer globally, participating experts agreed that China will have to tackle a number of challenges before it can exploit its own shale resources. While US companies might have an interest in assisting their Chinese counterparts in exploiting China’s domestic resources, the possible loss of intellectual property related to fracking technology might be the biggest obstacle to bringing foreign investment on board for Chinese companies.

Sebastian Feyock, Program Officer USA/Transatlantic Relations at the German Council on Foreign Relations chaired the discussion. Approximately 30 guests from a number of sectors from civil society, businesses, and politics took part. The event was supported by the Fritz Thyssen Foundation.

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